Start a software company or work in a bar?

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The Micro ISV dream is that of quitting your day job and setting up your own one-man business. Instead of slaving away to make other people rich you can leave your cubicle behind, spend a few hours a day with some light coding and relax while the money rolls in. But is this possible? Can you afford to leave your job? Or should you get a job in a bar instead to get that extra income?

A handful of Micro ISVs are extremely successful. A Micro ISV can sell more than $50,000 a month. These rare successes skew the numbers for the majority of Micro ISVs though. Most one-man bands earn under $25 / hour. The most common number of sales per month is none. The most common amount of sales / month is no dollars. But the outlook isn't quite as grim as those numbers make out. Read on to get the full picture.

I ran a survey on the Joel on Software forums a couple of weeks ago. 96 people replied. Here are some of the results (you can find the first part of this write-up here). Note that one issue with this survey is that it's surveying JoS regulars who have the time and inclination to answer a survey: it's not randomly sampling all Micro ISVs.

The definition of Micro ISV is loose. Some people think of Micro ISVs as being just one-man bands, for others it's a synonym for small business. This survey side-steps the issue and only asked people who called themselves Micro ISVs: they are self-classified Micro ISVs. Here are their sizes:

As you can see, most Micro ISVs are a single person. Just 10% of all Micro ISVs consist of more than 2 people.

The average (mean) number of downloads or trials / per month is over 3,000. This is, however, skewed by some outliers [as with all these graphs, beware of the differing bin size which can be misleading]:

Although downloads and trials are important, it's sales that really count. Again, some highly successfuly mISVs skew the numbers. The median sales / month is $2,000, but the mode (the most common sales figure) is zero:

Actually, it's not sales that really count. It's profits. Unfortunately I didn't ask that question.

The average conversion rate is almost 8%, but under 3% is much more common:

Although some Micro ISVs sell products for more than $50,000, most products are priced at under $65:

The amount of time people spend working on their mISV varies, from almost nothing to over 80 hours per week. The average (mean) is about 25 hours per week:

The biggest issues that Micro ISVs face are time, motivation, sales and marketing:

I drilled down into the data and examined single person Micro ISVs who had been in business for 6 months or more (on the assumption that they should be earning money by then). Based on the hours / week and sales / week, and ignoring expenses, here are the hourly salaries:

A lot of people earn nothing at all. Half of people earn under $25 / hour. But some people earn $200 or more / hour.

Interestingly, there is only a weak correlation between sales and hours worked. There is, however, a moderate correlation (Spearman's rho=0.55, p < 0.01) between months the mISV has been going and sales. In other words, there's only a weak link between how many hours a Micro ISV is currently working and their revenue. How long they've been in business is a better indication of how much money they make. Of course, this could be because older businesses are, by definition, those that have not failed, and people making money now might be coasting on past successes.

So what's the conclusion? Most people don't have the time, motivation, marketing or sales skills to make it big as a Micro ISV. And running a Micro ISV can take up a lot of time. It's an interesting hobby, but most people don't make enough money to quit their day jobs, and the odds are they never will. But it can be done.

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Comments

[Neil Davidson]

David,

The size of the buckets distorts the graph (ie the 0 bucket has a very narrow range, but the $2,001 - $5,000 has a $3,000 dollar range). Maybe talking about modes doesn't really make any sense in this context.

- Neil

[jeff paul internet marketing]

well niel i totally agree with you n this point , and i must say you really have a good way of looking at different aspects on life .

[jeff paul internet business]

Starting a company always gives a hard time no matter its a software company or some other stuff, and the point you mentioned were really informative.

[Jeff Paul Internet Millions]

Thanks for posting such vital information. I am new to the blogging scene. Any and all pointers are helpful.

[Sat Upload]

Starting a company always gives a hard time no matter its a software company or some other stuff.

[Jim]

This is why I think most valuations for successful businesses are BS, because you're not just buying a profit making business, but also an idea which worked and a heck of a lot of effort to get it going.

[Jason Short]

Maybe they were all spending too much time on JoS instead of running their business? ;)

I think you have to include in that stat that most MicroISVs don't work any where near the 40 hour mark, so the hourly rate may be quite low.

When I was in the Army I calculated my hourly rate at about $6 per hour because we were always working 70-100 hours per week, not because we were paid minimum wage ( you also got free meals! ).

[Acomplia]

This is gonna huge, i just cant belive it that i am standing at a great blog of my life, i am really glad to have my comment here in very decent topic. thanks to webmaster.

[matthew]

If you focus on the ones who have been in the ISV business for a couple of years, you see that all of the successful sell for around $10000-15000 per employee per month, which is rather interesting.

My sales are $10000 per month, and my direct costs is $4000. I earn about half what I could do as an employee in a company, since I am very senior.

My goal is to triple the sales within a year, otherwise I need to reevaluate if I should be an ISV until I retire.

[Ian Ringrose]

Even if you fail, you may learn a lot in the process that may mean your next job is a better job then you had before trying to start a software company.